The background, governments response and current real estate information regarding instances when overseas companies own UK property to disclose their details of ownership in the public register.
Background – PSC register and consultation
The UK government has long been concerned about the potential for the misuse of corporate vehicles and has aimed to make the UK a transparent place to do business.
In April 2016, the UK introduced a register of beneficial ownership of companies, known as the register of people with significant control (PSC) or PSC register, which allows the public access to a central record of this information. However, the PSC register does not apply to companies incorporated outside the UK.
In April 2017, the government's attention shifted to the ownership of UK real estate by overseas companies. A consultation paper was published in which the government's stated aim was to make UK property ownership more transparent thereby fostering confidence and trust, adding that transparency also plays a vital role in helping combat corruption and money laundering.
The government's response to the consultation – main points
In March 2018, the government published its response to the consultation. The main points are set out below.
Timing – the government intends that the register will be operational in 2021.
All entities to register – the government intends that all legal forms of overseas entity which can hold UK real estate will be required to register, while ensuring that there is flexibility in the regime to permit exemptions for certain types of entity if this seems appropriate (e.g. to reduce the regulatory burden where there is already transparency of beneficial ownership information).
Leaseholders – the government intends to include ownership of all registrable leases in the register. In broad terms, this will include leases of more than 7 years.
Disclosable owners – the government intends to align the definition of beneficial owner for the register with the definition for the PSC register. That is, any person who meets one or more of the following conditions in respect of the entity in question:
- Directly or indirectly holds more than 25% of the shares in the entity.
- Directly or indirectly holds more than 25% of the voting rights in the entity.
- Directly or indirectly holds the power to appoint or remove a majority of the board of directors of the entity.
- Otherwise has the right to exercise or actually exercises significant influence or control over the entity.
- Has the right to exercise or actually exercises significant influence or control over a trust or firm that is not a legal entity, which meets one or more of the above four conditions.
What information must be included in the register? – the government requires the same information for the new register as for the PSC register.
Non-UK entities – the government intends that entities that are not similar to UK companies limited by shares should use various adaptations to the PSC definition as set out in the 2017 consultation to identify their beneficial owners. For example, where the entity does not have share capital, consider rights to a share of the capital or profits of the entity.
Current real estate owners – current owners of real estate will be required to register, as well as intending purchasers. The government originally proposed a one year transition period to comply, but will now consider the extent to which the one year period should be extended. At the end of the transitional period, if the current owner is still in breach of the registration requirements it will be prohibited from dealing with the property by way of a note on the title register at the Land Registry.
Intending purchasers – the government intends to introduce a system of statutory restrictions and of putting notes on the relevant land register, backed up by criminal offences.
An intending purchaser will have to apply to Companies House to participate in the new register and register its beneficial owner details with Companies House. A note will be added to the title register that reflects the restrictions on dealing with the property if the owner is in breach of the registration requirements. Where an intending purchaser's real estate purchase is to be bank financed, the bank is likely to insist on the purchaser registering its beneficial owner details at Companies House as a condition of providing the financing.
Additionally, the government intends to allow the beneficial interest but not legal title to pass to an overseas legal entity that does not have a valid registration number at completion or settlement. When entities cannot get information about their beneficial owners – the government intends to require that entities unable to give information about their beneficial owners will be asked to provide information about their managing officers.
Keeping the information on the register up-to-date every two years? – the government is considering increasing the frequency of the update in order to achieve the right balance between maintaining an accurate register without creating undue costs and burdens.
Enforcing the requirement to update information – the government intends to introduce a criminal offence to enforce the requirement to update information.
Conclusion
All current and intending overseas owners of UK real estate need to be aware of and be prepared to comply with these regulatory proposals.
In the consultation paper, the government acknowledged that the downside to being the first country to introduce such a register means that there is no model from which to work and so it is anxious to get it right and produce an effective disclosure regime that does not put too great a burden on overseas investors in the UK. It remains to be seen whether the latest proposals strike the right balance.
